Manufacturers are awaiting President Uhuru Kenyatta’s decision on the 16 per cent VAT on fuel before increasing consumer goods to match the additional operation costs.
Kenya Association of Manufacturers chair Sachen Gudka said factories will not absorb the cost impact of the new tax that took effect on September 1, but will adjust prices in the coming days.
Mr Kenyatta has until Thursday to assent to the Finance Bill 2018 which contains amendments to defer the levy on fuel for a further two years, or reject and return it to the National Assembly with recommendations.
The Bill will automatically become law if he does not act within the 14-day window from the day it was approved in the House on August 30.
“The impact of 16 per cent VAT on fuel will lead to prices to the final consumer being increased substantially,” Mr Gudka said.
“We need to calibrate how much the increase will be product by product.” The tax is part of a government bid to boost revenue collection in order to narrow the fiscal deficit and secure an extension of a standby credit facility from the International Monetary Fund. The High Court last Thursday ordered a temporary suspension of the tax but prices at petrol stations had not come back down.
Transport operators have also raised their charges and some petrol dealers have gone on strike to protest against the new tax, causing fuel shortages.
The tax was originally included in a law passed in 2013, but was postponed several times amid protests about its impact.
Mr Gudka said factories are unlikely to pass onto consumers costs which are more than the impact of the fuel tax, singling out players in public transport whom he said are “opportunistic” after raising fares as much as 40 per cent.
Kenyan businesses and ordinary people routinely complain of a heavy tax burden.
The chamber of commerce said the government could widen the tax base and increase the rate of tax compliance to 50 per cent from the current 17 per cent.
It also urged the government to cut expenditure, reduce wastage of public funds and deal with corruption, which some past studies say accounts for loss of up to a third of the government’s annual budget.